The Need for Social Enterprise Legitimacy in Indonesia

Indonesia is one of the countries with the largest wealth and social inequality. However, it is not only the responsibility of the government to tackle these issues, but also all elements of society. Apart from relying on individuals, companies CSR contribution and non-governmental organization there is one form of entity that is sustainable in tackling socio economic issues and that is, social enterprise. 

Social enterprises exist as a dual purpose entity, they tackle social objectives while generating profit, making them sustainable, not relying on sole donations and grants. Social enterprises fill the gaps left by government programs, in many cases they support the work of government and are partners in developments. 

Indonesia social entrepreneurship has existed long before Independence. R.A Kartini strives for women’s emancipation which she funded through her family business. Islamic mass organizations such as Muhammadiyah and Nahdlatul Ulama (NU) have shown sustainability through their efforts in tackling the issue of access to affordable education in the country.

Yet their existence is not recognized as social enterprise, many are still lumped under the banner of nonprofits, skewing them opportunities that they can take on.  

KADIN sees two problems that most social enterprises are facing in the country. 

• First, lack of a legal entity to formally represent themselves in the country. Indonesia currently only recognizes two types of legal bodies, which are for profit (PT, CV) and non profit (Yayasan). Meanwhile, social enterprise sits in the middle of these two bodies as social enterprise needs to generate profit in order for them to support their social objectives and remain sustainable. 
• Second, the ecosystem in the country has not supported their existence. Hence hindering them to grow towards a full fledged investable entity. Most social enterprises in Indonesia are operating informally and do not have the capacity to grow into scale as most of them get into it with altruistic intentions but are lacking in knowledge on how to run a business. 

For profit business entities have multiple access to funding such as private capital and bank loans. Nonprofits can access multiple sources of funding as well, for example philanthropic funds and development funds. While social enterprises are in the gray middle area. Private capital deems them to be 'uninvestable', while solely relying on donations and philanthropic funds are unsustainable for their business model.

Therefore, Blended Financing Mechanism exists to solve this problem by taking advantage of philanthropic and development funds during the early stage and tapping into private capital in order to grow profits and tackle more social objectives. 

Blended financing unlocks two objectives, gaining profitability and enabling their social mission.

KADIN supports the enactment of the Social Enterprise bill to formalize the existence of Social Enterprise and is ready to support these social enterprises through means of incubation and acceleration to develop their business model and work with our government partners to formulate a regulatory ecosystem that incentivizes social enterprise. 

Once a legitimate body has been established KADIN is also ready to advocate for an ecosystem which can accommodate several sources of funding: 

• Mobilizing Indonesia impact fund towards those social enterprises that aims to fulfills 2030 SDGs, especially those that are climate positive. 
• Utilizing KADIN Net Zero Hub as a platform to accelerate funding in decarbonization and help companies unlock values in sustainability.
• Collaborating with Greeneration Foundation to set up Green Fund Digital Philanthropy which enables crowd funding to accelerate development towards more sustainable pathways and tackling climate change.

Lastly, I would like to introduce the truly Indonesian ideals of Gotong Royong. Gotong means lifting/supporting and Royong means together in Javanese. 

Millions of people are still struggling from the socio economic impact of COVID-19 and now the global economic recession. 

It is the time, hand in hand, with the power of togetherness: government, private sectors, including investors (philanthropist, private capital, development agency), should collaborate inclusively to support countries, especially those with the most vulnerable and fragile economies, and reduce the global social and economic inequalities.

Recover together, recover stronger. 

—

This is an excerpt from my remarks at the AVPN Global Conference 2022, 'The Catalytic Role of Philanthropy', 22 June 2022.